Power Switch

By Kayla McGrady ’05

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The American energy industry faces challenges stemming from climate change, shifting economics, and a dwindling supply of fossil fuels. Some experts argue that our ultimate goal should be a total transition to renewable energy. But when—and how—will that happen?

The energy industry is no stranger to controversy. Before acid rain and climate change, American energy providers were navigating the geopolitics of importing foreign oil and the logistics and ethics of constructing hydroelectric dams on home soil.

Today’s challenges include integrating wind and solar energy into the grid, which became commercially viable only over the past decade, and deciding when and how to make the transition from fossil fuels to renewable energy. Meanwhile, the introduction of hydraulic fracturing (fracking) has reduced the cost of natural gas and made coal—once the backbone of U.S. electricity production—a less affordable option. Policy debates about how to provide incentives for the most efficient, economically stimulating, and environmentally friendly energy production continue unabated.

“There’s a huge amount of information to assimilate and analysis under way in the energy industry,” says Brad Nordholm ’78, vice chair and senior managing director of Starwood Energy Group Global. Nordholm is located in Greenwich, Connecticut, but he works on a variety of energy projects across the country, from Texas wind farms the size of Manhattan to the largest biomass power generation facility in the United States. Starwood also develops solar and natural gas projects and deploys high-voltage transmission and storage technologies.

“We will build a project only when someone has committed to buy the electricity from us,” he says. “So, can we find a customer who finds the price and the attributes of the electricity attractive?” Some markets want renewable energy to meet state regulations. Others want whatever is cheapest, while still others are most concerned with diversifying their energy portfolio or smoothing out variability in their energy grids.

That said, Nordholm reports that nearly all new U.S. electricity production projects are natural gas, wind, or solar, and that’s a trend he expects to continue. “Even without regard to governmental incentives, coal-fired power plants and nuclear plants simply can’t compete with the cheap natural gas, wind, and solar technologies,” he says.

“To put things into perspective: we built a very large solar project in 2009 for about five dollars a watt. Today it would cost under one dollar a watt to build that same project.”

electric cordsPhoto: Spiderstock/iStock Photo

Running on Renewables

With the price of solar cells and wind turbines at all-time lows, the quest for better battery storage has taken center stage in the energy industry, says Nordholm. “The price of energy in the solar market could change 1,000 percent in a matter of minutes before battery storage became economical to install.”

Lithium ion batteries—“like the ones in your phone, but the size of buildings,” says Nordholm—have become commercially viable only in the past few years and are rapidly decreasing in cost. But they’re best suited for short discharge periods of up to four hours, rather than dispatching stored solar energy all night long.

That’s why Brian Berland ’91 is working on developing a better battery. Berland, who is the chief science officer at ITN Energy Systems in Littleton, Colorado, is helping develop vanadium redox flow batteries to store solar and wind energy.

Here’s how they work: A vanadium ion is dissolved in a liquid solution and circulated through a cell stack. “As the ion goes through the cell stack, you’re essentially either pulling an electron off of it or putting an electron onto it, depending on whether you’re discharging or storing energy,” Berland says.

It’s pretty similar to how lithium ion batteries work, with one major difference: instead of a liquid solution, lithium ion batteries use solid state crystal structures that must expand to let ions in or contract to let them out during the charge and discharge process. “That repeated expansion and contraction eventually breaks the material,” Berland says, meaning that lithium ion batteries lose 20 percent of their capacity sometime between 500 and a few thousand cycles. On the other hand, redox flow batteries can last 20,000 to 30,000 cycles without losing any capacity.

“A solar cell or windmill lasts for 25 to 30 years. You’d replace a lithium ion battery three to five times in that period, but redox flow batteries could last the whole life of the renewable generator,” says Berland. “Plus, they’re more cost-effective to run for longer periods of time.”

Redox flow batteries are currently being field-tested, but lithium ion batteries have a big commercial edge because they were in the market first, Berland says: “People who have invested money in that technology are trying to figure out how to make lithium ion batteries remain the incumbent technology.”

Introducing new technology is also a challenge for Anne Starace ’06, a staff scientist at the National Renewable Energy Lab in Golden, Colorado, where she develops biofuels. “It’s hard to get a company to license a fuel if we just have laboratory-scale results,” Starace says. “I can produce milliliters of fuel to demonstrate its properties, but companies want to see barrels. Everyone wants someone else to do the work of scaling it up. The private sector is averse to taking that risk.”

Nordholm acknowledges that Starwood relies on established technology for its projects. “With our business model, we need to be right 99 percent of the time,” he says. “Many of these projects are 20- to 40-year investments. We need to be assured they’re going to work. We can’t risk the manufacturer going bankrupt or not being able to stand behind the performance.”

Who, then, will assume the risk? “Most government-issued grants are for new, groundbreaking stuff,” Starace says. Government-funded entities like the National Science Foundation are eager to support laboratory tests like Starace’s, but they don’t see taking that technology from the lab to a fully realized production line as part of their exploratory mission. “There are a limited number of organizations that are willing to fund scaling a technology to the point where it becomes viable in the market,” says Starace. “If we want to be able to use more new technology, we need more people willing to do that.”

Starace would love to entice investors to support the biofuels she hopes will transform the transportation sector. “It’s a two-pronged effort,” she says. “We’re making what we call ‘drop-in fuels’ that could work in existing car engines. But there are limits to the engines’ efficiency, so we’re also looking at retooling them to run on more oxygenated fuels, which we’re also developing.”

Biofuels are currently made from waste in logging and agricultural industries, but “we’re also looking into municipal waste—the trash that’s picked up from your house,” says Starace. “We can pull out things like metal, glass, and so on, and use the remainder of the trash to make what we call a ‘refuse-derived fuel.’ It’s exciting to be diverting things from a landfill.”

drivingPhoto: Sophie Caron/iStock Photo

Big Decisions for Big Oil

Even with advances in renewable energy technology, Americans still rely heavily on petroleum and natural gas. The percentage of U.S. energy produced from petroleum has held steady over the past decade, and natural gas has increased, thanks to fracking.

But that doesn’t mean behemoths like Exxon and Chevron aren’t worried about the future. “Various constituencies have different ideas about what big oil should be doing right now, so companies are being pulled in different directions,” says Noah Brenner ’03, head of corporate coverage at Energy Intelligence Group, an independent energy journalism, analysis, and data service with branches around the world.

“First of all, people disagree about when oil demand will peak,” says Brenner. “Some say it will be as early as the mid-2020s. Others say it’s out beyond 2040.” There are many factors at play in future projections of oil demand. Will the transportation sector—the largest demand driver for oil—turn to electric vehicles? If so, when? Will legislation curbing emissions accelerate the transition away from oil? Many people project that oil demand will peak, but it’s difficult to predict precisely when that will happen. So, while some people want oil companies to invest heavily in renewable energy to speed up the transition, others argue that they should be bringing more oil to market so the price doesn’t spike. Meanwhile, many stockholders are pressuring companies to avoid spending money on growth in either renewable or traditional sectors and instead funnel capital back into dividends or share repurchases.

“I’ve seen a lot of paralysis on the part of big oil companies because they face so many existential questions that don’t have easy answers,” Brenner continues. “Companies are in the early stages of conversation, dipping a toe into a variety of different technologies, making very small investments. But I haven’t seen any bold moves to position themselves ahead of the energy transition.”

Meanwhile, even the heart of the oil business—drilling—is changing. While fracking has helped natural gas settle into a relatively stable position in the market, petroleum exploration has never been more complicated. “We’re using hydrocarbon billions of times faster than the earth can produce it,” says Sarah Greene ’05, a Houston-based oil exploration geologist for an international oil company. “We’re running out of easily accessible oil where the geology is straightforward. Now we’re going for generally smaller volumes in stranger places.” The days of tapping into large underground lakes of oil under sandy dunes in the Middle East are largely over, Greene says. As a result, companies hire geologists (like Greene) to advise on the various rock formations standing between them and the oil so they can construct safe, stable wells.

The shift toward smaller oil fields—which both pay off and deplete more quickly—is also being driven by economics, says Brenner. “Large, expensive oil production facilities have around a 30-year lifespan or longer,” he says. “If you’re uncertain about your future, you’re reluctant to make those kinds of investments.”

Big oil is playing catch-up when it comes to the data integration and visualization technology that enables complex drilling projects, says Greene. “We’re at the forefront of figuring out how to put holes in the ground, but the medical industry is way ahead of us in imaging and pattern recognition technologies. We’re trying to bring some of that into the oil industry,” she says. “One of the computer programs I use draws a lot of its algorithms from MRI technology.”

Data and imaging are essential for quantifying subsurface pressure and stress to ensure that these wells remain stable, says Greene. “It’s immensely expensive for us to drill safe wells, so that limits the number of places we’re willing to drill. That’s one reason international oil companies (IOCs) are at a disadvantage compared to national oil companies (NOCs).”

NOCs are common in the Middle East and in developing countries. China, Russia, and Canada have them, too, but the United States does not. NOCs are subsidized by their governments, and their primary objective is to ensure resources are readily available to meet their country’s needs. Making a profit is a secondary concern for NOCs, whereas IOCs won’t pursue a resource unless they believe they can make a profit from it. That means NOCs can take bigger business risks and pursue oil fields that IOCs deem too costly to explore. “The 10 most successful oil companies in the world are NOCs,” says Greene. In fact, a 2011 study by the World Bank estimated that NOCs controlled 90 percent of proven oil reserves at the time.

As of today, oil is still a very profitable business, and the share of the global market left to IOCs has been enough to keep them going strong. “I might not encourage my grandchildren to go into the oil industry,” says Greene, “but I feel secure that my job’s going to be around for a long time.”

crowdPhoto: Esther Poon/iStock Photo

Power for the Public

The energy industry doesn’t only produce power, it also has to deliver power to the end user.

“New Mexico has enough solar and wind resource to be 100 percent renewable with energy to spare,” says Tim Lasocki ’96. “But how do we get that excess energy to Arizona or California? In some cases, transmission is a constraint to using available energy resources.”

As vice president of origination and finance at Orion Renewable Energy Group in Oakland, California, Lasocki analyzes the myriad components beyond sun and wind that determine if a renewable energy project can succeed. For example, the condition of the local grid determines how easily energy can be moved to neighboring areas or how much volatility the system can handle. Weaker grids might need storage capability to help even out energy input from wind farms so that on a windy day excess energy can be stored for later instead of being released directly into the grid where a spike could overwhelm the system.

Each location also has different policy restrictions. Some states have renewable portfolio targets to meet. Some areas have tax incentives or penalties for certain types of energy. And, of course, there are permitting restrictions. “If you’re building an energy project in the Los Angeles basin, solar will have an advantage because it’s emission-free,” says Lasocki. “You can’t get a permit for a natural gas project there, because it’s constrained and smoggy.”

Utility and energy companies like Orion and Starwood aren’t just thinking about the current realities. They have to consider how a project will function throughout a 20- to 40-year lifespan. “Today we’re in a situation where natural gas is abundant and cheap, but that might not always be true,” says Lasocki. “That’s why it’s important to have diversity in your energy production.”

Natural gas, solar, and wind are all attractive options for new and upcoming investments, and they have different advantages. Natural gas is more flexible than renewables—you can’t control when the sun shines or the wind blows, but you can turn a gas combustion system on and off. On the other hand, renewables have a long-term fixed price in that the sunshine and wind that fuel them are free.

light switchPhoto: Michael MJC/iStock ImagesBut as gas, solar, and wind increase in popularity, coal has lagged behind. When seven coal facilities at Louisville Gas & Electric (LG&E) and Kentucky Utilities were scheduled to be retired about three years ago, the combined utility replaced them with a single natural gas combined-cycle facility, says Duane Schrader ’76. As LG&E’s trading manager, Schrader buys the gas that fuels the new facility—and works alongside a colleague who buys the utility’s coal—so he sees firsthand the difference that switching a portion of the energy production from coal to gas has made. “We are right in the middle of coal country, and there was some serious pushback from the legislature at the time,” he says. “But the new gas facility is the most economical thing in our fleet.” While a net of about 100 jobs were lost through the transition, all of the employees affected were offered retirement incentives or first shot at openings created by retirements or departures elsewhere in the company. Ultimately, the utility and its regulator agreed that offering residents cheaper electricity was more important than maintaining the same level of support for the local coal economy.

LG&E’s new combined-cycle natural gas facility not only uses fuel that’s currently cheaper than coal, but it’s also incredibly efficient. It features twin jet engines that turn turbines, and it also has a heat recovery steam generator that uses the jets’ exhaust to turn another turbine that produces as much energy as one of the jets. That’s a third more energy without using any additional fuel.

Coal plants still produce the majority of LG&E’s power, and the utility isn’t rushing to retire them early. The newest coal-burning power plant, opened in 2007, is only 11 years into a 50-year lifespan. Shutting it down early would incur not just the cost for a replacement facility but also the costs of closing the plant. “You don’t just shut the door,” says Schrader. “We still have years to go in the process of closing those coal plants that went offline about three years ago. They’re not producing power anymore, but there are still workers there digging out the ash ponds, restoring the soil, cleaning up the piles of gypsum from scrubbing the sulfur dioxide out of the emissions [to make the coal ‘clean’], and monitoring potential runoff of heavy metals.”

All of the utilities’ calculations are meant to assure their customers reliable and affordable service, says Schrader. “If people tell the public service commission they want all-renewable energy, then we’ll give them that, but not before we warn them that it’s going to cost an arm and a leg. I’m not the biggest fan of coal, but I do think it’s a good thing to provide our community reliable, affordable power.”

With cheap solar and wind technology, why would renewable energy cost so much? “Kentucky is not very sunny, and we don’t have consistent winds,” says Schrader. “It’s also a hassle to schedule electricity from renewables—which are unpredictable—into the system and handle the fluctuations in the grid. When consumers ask utilities to rely heavily on renewable energy, they’re asking us to translate an intermittent resource into consistent and reliable power, and that’s not simple or cheap.”

“In some places, like California and the Northeast, consumers have been willing to pay a premium for renewables,” says Lasocki. “Those price signals incentivize development that will ultimately lower the price of the technology. That’s currently happening in California, where the focus on solar energy is creating an economic incentive for energy storage.”

There has always been energy storage on the electric grid, Lasocki points out. It’s in the form of the natural gas reserves like the ones Schrader buys to fuel LG&E’s peakers, smaller generators that can be turned on or off quickly. LG&E uses peakers to meet extra demand or to compensate if a coal plant goes down. It’s not unlike the purpose battery storage would serve when air conditioners are running longer on a hot day or solar panels stop working for the night. In order to get that service from a battery instead of a fossil fuel, Lasocki says, we can use hourly price signals that will provide incentives to move energy production to when it is most valued. We need more energy at 6:00 p.m.—when more people are coming home from work—than we do at 2:00 p.m. when solar panels are most productive. If we pay more for each kilowatt when demand is highest, that economic incentive can encourage utilities to install battery storage to move renewable energy to peak times.

“The next round of renewable energy deployment will be around grid reliability and integrating higher percentages of renewable resources onto the grid,” he says. “The technology is there. It’s just an economic challenge now, but that’s part of what makes it exciting to me.”